Peak US growth under Trump slowest for any US President since World War II

The present US
administration is attempting to fight the trade war against China on two fronts.

The
first is the US economic attack on China, primarily centred at present on tariffs.
This is designed by US policy to create objective economic problems for China.

Second
is the attempt to spread a false view of the international situation and in
particular of the real state of the US economy.

The most
central falsification on this second front is the Trump administration’s attempt
to present a view of the US economy as undergoing ‘very strong’ growth. This claim
of ‘strong growth’ is in fact the reverse of the. For the reality is that far
from US growth under Trump being ‘strong’ it is in fact the lowest under any US
President since World War II!

The aim of this article is therefore factual, to lay out in detail the factual realities of the US economy under the Trump administration. It demonstrates that the Trump administration has launched its attack on China not because of ‘dynamic’ US growth but because US growth has fallen to such a low level by historic standards.

The entirely false economic claims of Trump

When
President Trump claimed in his speech to the UN General Assembly on 25
September that, ‘America’s economy is booming like never before,’ and that, ‘in
less than two years, my administration has accomplished more than almost any
administration in the history of our country,’ the delegates literally broke
out into laughter – as US media reported. The Washington Post
headlined its report: ‘”People actually laughed at a president”: At UN speech,
Trump suffers the fate he always feared.’ The UK Financial Times
similarly noted: ‘President Trump prompted laughter and gasps.’

As Trump’s
claim the US economy is ‘booming like never before’ is simply entirely untrue,
as was his earlier one that growth under his presidency was ‘historic’, by
which he meant historically high, it is therefore rather astonishing to see
similar claims repeated in parts of the media. The reality is that under Trump,
far from the US undergoing ‘strong recovery’, it is experiencing the slowest
economic growth in any business cycle, and during any presidency, since World
War II. As this article will show, the only sense in which economic growth
under president Trump is ‘historic’ is
in the sense that it is ‘historically low’.

US Post-War Business Cycles

To start with
the most comprehensive data on US post-World War II economic performance, Figure 1 and Table 1 show the data for growth in all US
business cycle since World War II. Table 1 shows these eight US business cycles
since World War II in chronological order – a business cycle is defined as the
period between two recessions and a recession is defined, in the standard US manner,
as two successive quarters of negative growth. As business cycles are of
different lengths the key statistic for comparison is the average annual growth
rate during the cycle – shown in the last column.

The feature
which stands out from this data is clearly how much slower US growth is during this
business cycle than it than in any previous one since World War II. To give a
comparison to evaluate Trump’s claim regarding ‘historic’ fast growth, the most
rapid annual average economic growth in any post-World War II US business cycle
was in 1948-1953 at 4.7%. That was more than three times as fast as the 1.5% during
the current business cycle. Indeed, it may be seen that in all previous US post
World War II business cycles growth was faster than in the present one.

Looking in Figure 1,
at the end of the growth line for the present post 2007 business cycle,
it can also be immediately seen that there is no significant acceleration
during the Trump presidency – this will be demonstrated in detail below.

Figure 1

Detail

In order to
show the trends in the post-World War II economy more clearly and in greater detail
Figure 2 sets out growth in US business cycles
since World War II in descending rank of growth rate rather than chronological
order. This shows the following clear pattern.

The
second highest annual average growth in any US post-World War II business cycle
was in 1957-1969 at 4.3%

The
third highest annual average growth in any US post-World War II business cycle
was 3.4% in 1969-1973.

The
sixth highest annual average growth in any US post-World War II business cycle
was in 1973-1980 at 2.9%.

The
seventh highest annual average growth in any US post-World War II business
cycle was 2.5% in 1953-1957.

The
slowest annual average growth in any US post-World War II business cycle was in
the cycle from 2007 to the present, the latest data being for the 2nd
quarter of 2018 – with an annual average growth rate of only 1.5%.

Figure 2 therefore shows clearly
how much slower growth is in the present US business cycle than in any previous
one since World War II. The claim that that the US is undergoing ‘dynamic
growth’, due to rapid technological innovation or to Trump, is the exact
reverse of the truth. What is striking about the present situation of the US
economy is how slow its growth is compared to all previous post-World War II US
business cycles

Figure 2

Growth under Trump – the US method of measurement

So far growth
during US business cycles has been analysed. But the Trump presidency covers
only a part of the present US business cycle – this business cycle has also
been proceeding under the presidencies of George W Bush and Obama. Therefore,
to compare presidencies, it might be claimed that growth under Trump is fast,
whereas that under George W Bush and Obama was weak. But, once again, the facts
show the exact opposite – it is growth under Trump which stands out as weak.

To show this Figure 3 illustrates US GDP growth during the
21st century measured by the method by which the US publicises its economic
data – i.e. quarter on quarter GDP growth annualised (for example growth in the
2nd quarter of 2018 compared to the 1st quarter of 2018
annualised). Figure 3 shows that using this measure:

In
the last period of the Clinton presidency peak US growth reached 7.5% in the second
quarter of 2000 – the fastest growth under the Clinton presidency.

Under
George W Bush there were successive peaks of growth of 7.0% in the 3rd
quarter of 2003 and 5.4% in the 1st quarter of 2006.

Under
Obama peak growth was 5.1% in the second quarter of 2014.

Therefore,
the peak growth under Trump of 4.2% in the 2nd quarter of 2018, is
slower not merely than under Clinton but also slower than under George W Bush
and Obama during the present business cycle.

Figure 3

Real US year on year growth

It was
demonstrated above that even taking the method by which the US choses to
publicise its data growth under Trump is slower than under Obama, George W Bush
and Clinton. However, there are significant problems in the way that the US
publicises its GDP data – i.e. by annualising quarter on quarter growth. This
is because:

First,
as only a three-month period is used, short-term factors distort the data.

Second,
because such short-term factors are approximately multiplied by four their
effect is magnified[i].
This results in the peak growth rates achieved under all US presidents measured
by the US method being exaggerated – Clinton never actually achieved 7.5%
growth over a whole year, George W Bush never achieved 7.0% growth over a whole
year etc.

Third,
because different quarters are being compared a seasonal adjustment calculation
has to be made which must be accurate for the data to be correct. But in the US
it is generally known this seasonal adjustment is inaccurate – the first
quarter growth in each year is understated, meaning growth in following
quarters is exaggerated.

This method
of China of publicising economic data is more robust than that of the US. China
highlights the real year on year economic growth rate – that is it compares GDP
in one quarter with GDP in the same quarter of the previous year (e.g. the second
quarter of 2018 is compared with the second quarter of 2017).

China’s
method of presenting GDP data is more robust for two reasons.

First,
a year is a sufficiently long period to eliminate the influence of purely
short-term factors – such as the weather.

Second,
no seasonal adjustment need be calculated as the same quarter is being compared
in each year.

Figure 4 therefore shows the real US year on
year growth rate achieved in different quarters during the 21st
century. It may be seen that this immediately lowers the growth rates shown using
the US method of presenting data that was given in Figure 3 (for example, the actual peak year on
year growth achieved by Clinton was 5.3%, not 7.5%). While the growth data
calculated by real year on year growth are more realistic than the US method of
publicising data, nevertheless it shows exactly the same pattern of the
extremely weak peak growth of the US economy under Trump compared to previous
presidents in the 21st century. More precisely

Peak
real year on year US growth under Clinton was 5.3%.

Peak
real year on year US growth under George W Bush was 4.3%.

Peak
real year on year US growth under Obama was 3.8%.

Peak
real year on year US growth under Trump is only 2.9%.

Once more it is
therefore clear that what is striking about growth under Trump is not how fast it
is but how slow it is.

[i] Strictly
speaking the annualization is carried out by ((1+g)^4)-1) where g is the growth
between one quarter and the next.

Figure 4

US economic growth under Trump is the
slowest under any US President since World War II.

So far, in
comparing growth under US presidents, only those in the 21st century
have been analysed. But the comparison becomes even worse for Trump if all US
President’s since World War II are compared. Indeed, the extraordinary
situation may be seen that peak growth under Trump is the slowest for any US president
since World War II.

To demonstrate
this Table 2 and Figure 5 shows peak growth under all 13 US
Presidents since World War II. This data is shown in the way that the US itself
choses to headline economic growth – one quarter’s growth compared to the
previous quarter at an annualised rate. This data then shows clearly that peak
economic growth under every previous post-World War II President was higher
than under Trump.

In more
detail, Table 2 shows that, using the US method of
presenting data, the peak growth under Trump of 4.2% in the 2nd
quarter of 2018 was significantly lower than the maximum growth under the
previous Obama administration of 5.1%. However, this peak under Obama was
itself far lower than under former US Presidents. In addition to peak growth
under Trump being lower than under Clinton, George W Bush, and Obama, as was already
analysed, earlier Presidents achieved even higher growth rates – such as 10.3%
under Nixon. Peak US post-World War II growth was achieved under Truman at
16.7% – almost four times as fast as the 4.2% under Trump.
It is therefore clear
that in terms of peak growth rate, measured by the way the US presents data,
Trump ranks last, 13th out of 13, of US post-war presidents.

Figure 5

Real year on year US
economic growth

To double check
the situation, it may again be recalled that the US presents its data in a
different way to China. Having already given the results using the US method, Table 3 and Figure 6 therefore shows real year on year
peak growth under all US presidents since World War II. This shows that also calculated
by this method the peak year on year GDP growth under Trump, at 2.9% in the
second quarter of 2018, is the lowest under any US president since World War
II.

It was
already noted that peak growth under Trump of 2.9% was lower than under Obama
(3.8%), George W Bush (4.3%), and Clinton (5.3%). But Trump’s peak growth rate
was also lower than under George H W Bush (4.4%), Ford (6.2%), Carter (6.7%),
Nixon (7.6%), Kennedy (also 7.6%), Johnson (8.5%), Reagan (8.6%), Eisenhower
(9.1%), and Truman (13.4%).
Therefore, whether
growth is calculated according to the method used by the US, or that used by
China and most other countries, peak growth under Trump is the lowest of all of
the 13 US presidents since World War II. What is therefore striking is not that
US peak growth under Trump is fast but that it is so slow in terms of
historical comparisons.

Figure 6

The state of the US business cycle

Finally, given
that peak US economic growth under Trump is slower than under any previous
post-World War II US president, the only reason President Trump is able to make
his entirely false claims of ‘historic’ growth is by comparison to the extremely poor performance
of the US in 2016 when US growth fell as
low as 1.3% in the second quarter – shown in Figure 7. But Figure 7 equally shows that both the downturn
in the US economy in 2016 and the recovery since then, were perfectly normal
fluctuations within the US business cycle.

Analysing
this trend in the US business cycle detail, it may be seen that the current long-term
average of US real year on year growth is 2.2%. However, naturally, there are
fluctuations above and below this. To give a rough approximation of the
magnitude of these fluctuations, as the 1.3% growth in US GDP in the second
quarter of 2016 was 0.9% below the long-term average then, merely to maintain
the average, a 0.9% oscillation above the average might be expected. The
long-term average of 2.2% plus 0.9% would be 3.1%. There is, therefore, nothing
abnormally high in US growth in the second quarter of 2018 being 2.9%.
Trump’s claims on
rapid growth therefore merely represent a normal fluctuation in the business
cycle and in no way alter the fact that peak growth under his presidency is
lower than under any US president since World War II.

Figure 7

Furthermore, there is a clear implication of the fact that even the slow peak growth under Trump is simply a normal upward oscillation in the US business cycle. This is that this will be followed by a perfectly normal downward oscillation in the business cycle. Indeed, this is precisely what is predicted not only by the long-term averages of US growth shown above but as is predicted by the IMF. As Figure 8 shows the IMF projects that after extremely poor US growth of 1.6%, for the whole of 2016, US growth will accelerate to 2.9% in 2018. After this, however, US growth will decelerate to 1.9% in 2020 and 1.7% in 2021 – this would represent a perfectly normal oscillation in the US business cycle.

Figure 8

To
understand the impact of this trend on US domestic politics it is important to
note that the US has a relatively fast rate of population increase – 0.7% in
2017. Figure 9 therefore shows both the actual increase in US per
capita GDP to 2017 and the IMF’s projections for the increase in US per capita GDP
after this. As may be seen, the IMF projects annual US per capita GDP rising to
2.1% in 2018 before falling to 1.1% by 2020 and only 0.9% by 2021. Therefore, the increase in US output
per person is actually significantly below the US total GDP increase.
Furthermore, due to rising US inequality, the increase in actual real incomes
of the majority of the US population is lower even than the increase in per
capita GDP.

With such a slow
increase in per capita GDP it is evident that current domestic political
tension and instability in the US will continue – as has been seen in the sharp
internal US political clashes since 2016.

Figure 9

Conclusion

There are
numerous consequences for China and for US domestic politics of the very slow
growth of the US economy under Trump compared to previous US post-World War II
presidents. However, the precondition for analysing these implications is to establish
the facts – which is the purpose of this article.

These facts leave
no doubt. Peak growth under Trump is the
lowest for any US president since World War II, and US growth in the present
business cycle is the slowest in any since World War II. In summary, US policy
is determined by how slowly its economy is growing by historic standards.
There is no excuse
for sections of the media to repeat what is a purely fallacious claim by the Trump
administration of historically rapid US growth – delegates to the UN General
Assembly showed a more accurate sense of reality when they merely laughed at
Trump’s claims. The starting point for any serious analysis of the Trump
administration must be how slow its economic growth is compared to previous US
post-World War II presidencies. Once that is done then the features of the
Trump administration’s policies become clear.

The tendency of the rate of profit to fall results from the rising percentage of investment in GDP – the increasing capital intensity of production in Western economic terms and the rising organic composition of capital in Marxist terms. If the percentage of investment in GDP increases there is at present no practical reason the rate of growth should slow down.